09/05/2018. LEADER IN NURTURING CHARTERED ACCOUNTANTS Prepared By: Zvino L Mapetere CA(Z)

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2 09/05/2018 LEADER IN NURTURING CHARTERED ACCOUNTANTS 2

3 LEARNING OUTCOMES 1. Determining whether or not VAT should be levied in a transaction s6 2. Classifying supplies for VAT s10 and s11 3. Time of Supply s8 4. Value of Supply s9 5. Deemed Supplies s7 6. Calculation of VAT s15 3

4 1. Determining whether or not VAT should be levied in a transaction s6 A. Supply of good or services section 6(1)(a). - supply, by Registered operator, of goods or - services, on or after fixed date, - in furtherance of trade B. Imported goods section 6(1)(b) a.r.w. s 12. C. Imported Services section 6(1)(c). D. Sale of goods at Auction. Section 6(1)(d). 4

5 Second hand Motor Vehicle Exclusion Vat shall not be levied on second hand motor vehicles per section 6. Which 2 nd Hand Motor Vehicles? - Those that are subject to special excise duty on sales or disposals. - refer to section 172B of the Customs and Excise Act [Chapter 23:02] 5

6 A. Supply of good or services section 6(1)(a). - supply, by Registered operator, of goods or services, on or after fixed date, in furtherance of trade 09/05/2018 LEADER IN NURTURING CHARTERED ACCOUNTANTS 6

7 A. Supply of good or services section 6(1)(a). What is Trade? The definition in the VAT Act is a long one. This is a very important definition as it scopes in or out a lot of supplies for VAT purposes. 09/05/2018 LEADER IN NURTURING CHARTERED ACCOUNTANTS 7

8 A. Supply of good or services section 6(1)(a). A FEW KEY ISSUES ABOUT THE DEFINITION OF TRADE INCLUDES: 1. Continuous or regular carrying out of the activity; and 2. Person carrying out the trade must be carrying it out in Zimbabwe or partly in Zimbabwe; and 3. For a consideration 4. Whether or not for profit EXCLUDES: Hobbies Employment Supplies to an independent branch outside Zimbabwe. Accounting system must be separate. Exempt supplies 09/05/2018 LEADER IN NURTURING CHARTERED ACCOUNTANTS 8

9 B. Imported goods section 6(1)(b) a.r.w. section 12 For consumption in Zimbabwe Import VAT to the extent that they are not exempt supplies. Tax Rate X Value for tax purposes = Import VAT Value for Tax Purposes = Value for duty purposes + duty excluding Surtax Value for duty purposes = CIF Time of supply date deemed in terms of section 36 of the Customs Act. 09/05/2018 LEADER IN NURTURING CHARTERED ACCOUNTANTS 9

10 C. Imported Services section 6(1)(c) a.r.w. section 13 The supplier must be a foreigner. The recipient of the supplies must be a resident. The supply must be taxable and not zero rated. S13(5)(b) The supply must be for making non-taxable supplies. VOS greater of OMV or the invoice value of the service. VAT is accountable and payable by the recipient of the services within 30 days of Time of Supply. TOS is earlier of invoice date (recipient or supplier) or date payment is made by recipient whichever is earlier. 10

11 WHO CHARGES AND ACCOUNTS VAT? Section 6 (2) S(6)(1)(a) Supplier of the goods or service s6(2)(a) S(6)(1)(b)Imported goods by person importing s6(2)(b) S6(1)(c)Imported service by recipient of service s6(2)(c) S6(1)(d) Goods sold at auction by the auctioneer s6(2)(d) 11

12 2. Classifying supplies for VAT s10 and s11 a.r.w. s78 on Regulations Taxable Supplies - Zero Rated supplies - Standard Rated supplies Non-Taxable Supplies - Exempt 12

13 2. Classifying supplies for VAT s10 and s11 a.r.w. s78 on Regulations Zero rated supplies section 10 (0% Vat) They are taxable supplies. No empirical rule to determine them but generally this concession of zero rating is on supplies likely to stimulate economic growth such as: Exports and a number of transactions to do with export countries; Supplies on temporary imports; Supply of Business as a going concern; Specified Drugs; Supply of gold to specified institutions; Supply of agricultural inputs to farmers Common bricks Basic commodities 09/05/2018 LEADER IN NURTURING CHARTERED ACCOUNTANTS 13

14 2. Classifying supplies for VAT s10 and s11 a.r.w. s78 on Regulations Exempt Supplies Section 11 Not subject to VAT. They are excluded from the definition of trade; The suppliers do not register for VAT; Examples: Financial Services; Educational Services; Transport for fare paying passengers; Supplies by an association not for gain of goods; Medical services; Supply of goods and services by an employee organisation to its members to the extent that consideration of supply is limited to membership contributions; Supply of fuel and fuel products Supply of residential accommodation in a dwelling under a lease or hire agreement. 09/05/2018 LEADER IN NURTURING CHARTERED ACCOUNTANTS 14

15 3. TIME OF SUPPLY Section 8 Time of supply rules determine when a Taxpayer should account for any output tax applicable for a taxable supply. Generally the earlier of an invoice being issued or payment being made. Section 8(1) Supplies to connected persons. Section 8(2) Instalment Credit Arrangements. Section 8(3) Rental Agreements. Section 8(3) Goods supplied successively or progressively Section 8(3) Betting Fixed Property transactions. Goods whose consideration is not determined at the time of appropriation section 8(4) Repossessed goods section 8(8) 15

16 4. VALUE OF SUPPLY (Section 9) Value of supply Where the consideration is in money, the value is the consideration less VAT section 9(2) Defining consideration section 9(3) Where the consideration is not in money, the OMV becomes the consideration section 9(3) Supply by connected persons for no consideration or consideration less than open market value section 9(4) Deemed supplies at cessation of trade or transfer of goods to independent branches section 9(5) Goods supplied under instalment credit arrangement section 9(6) Deemed supplies Adjustments section 9(7) a.r.w. s17 09/05/2018 LEADER IN NURTURING CHARTERED ACCOUNTANTS 16

17 5. DEEMED SUPPLIES (Section 7) Sale in execution of debt; (VOS and TOS) Cessation of trade by a registered operator; Door to door sales with an option to return; goods; Lay bye agreement of consideration not less than $25; Supply of a business as a going concern; Indemnity payment under an insurance; Transfer of goods to independent branches; Goods repossessed; Betting services 17

18 5. DEEMED SUPPLIES section 7 For special supplies both the TOS and VOS are varied: Goods supplied under rental agreements Instalment credit agreements Sales to connected persons Goods applied to own use 18

19 6 Calculation of VAT section 15 Section 15(1) Guides calculation of VAT for a registered operator. S23 on registration refers. Section 15(2) provides guidance on when input tax is deductible Section 15(3) permits the deduction of input tax, tax fraction on indemnity payments made, prize winnings, bets, amounts calculated in certain adjustments, adjustments for properties in possessions, fiscalised electronic registers. Section 15(4) guides timing of deductions Section 15(5)Attribution of a supply to a tax period 19

20 VAT FORMULA Total Output VAT xxx Less: Total Input VAT (xxx) VAT Payable/Refundable XXXX 20

21 PRACTICE Discuss the Time of Supply and Value of Supply of : Cessation of trade Lay bye agreement Instalment credit arrangement Door to door sales with an option to return the goods. 21

22 7. INPUT TAX (Section 16) Section 16(1) Generally claimed on all goods/services, provided: They are utilised in the production of taxable supplies. Mixed supplies apportion using acceptable basis such as turnover basis. What is the deminimus rule? Section 16(2) Prohibited deductions Entertainment Purchase of PMVs Subscriptions fees to clubs or associations of a recreational nature. 22

23 MIXED SUPPLY EXAMPLES INPUT TAX Block of flats used for both residential and commercial. Entity operating hospital, pharmacy and shops. Transport company operating buses ferrying fare paying passengers and buses for hire. Car manufacturer selling cars and offering mortgage financing for the inventory. 23

24 QUESTIONS? 09/05/2018 LEADER IN NURTURING CHARTERED ACCOUNTANTS 24

25 PRACTICE QUESTIONS Study Unit L Practice question 25

26 Zvino Mapetere Contact Details Fungai Charumbira Philip Chambati 09/05/2018 LEADER IN NURTURING CHARTERED ACCOUNTANTS 26